Remedies for personal injury and death claims - Loss of earn...

Learning Outcomes

This article outlines the core principles for calculating and assessing loss of earnings in personal injury and fatal accident claims, including:

• Clear distinction between pre-trial (special damages) and post-trial (general damages) loss of earnings and why the classification matters in SQE1 problem questions
• Methods for assessing future loss using the multiplier-multiplicand approach with Ogden-based multipliers
• The claimant’s duty to mitigate financial loss and typical exam fact patterns indicating failure to mitigate
• Statutory frameworks for death-related claims under LR(MP)A 1934 and FAA 1976 and how they interact
• Bereavement damages, funeral expenses and financial and services dependency claims under the FAA 1976
• "Lost years" claims under LR(MP)A 1934 and their coordination with dependency awards to prevent double recovery
• Evidential requirements for loss of earnings claims, including proof of fluctuating income and residual earning capacity
• Calculation of net loss by applying appropriate deductions (tax, National Insurance, pension contributions, work-related expenses) and treatment of benefits and sick pay
• Application of the Ogden Tables, discount rate and employment contingencies to future loss, including selection of reduction factors
• Assessment of residual earning capacity and when a Smith v Manchester award is preferable to a full future loss calculation
• Identification of common pitfalls in exam-style scenarios, such as double counting, ignoring CRU recovery, or misclassifying heads of loss

SQE1 Syllabus

For SQE1, you are required to understand the principles governing the award of damages in tort, particularly concerning financial losses resulting from personal injury or death, including the calculation of both past and future loss of earnings, with a focus on the following syllabus points:

• The objective of compensatory damages in tort.
• Distinguishing between pecuniary and non-pecuniary losses.
• Methods for calculating pre-trial loss of earnings, including relevant deductions.
• The multiplier-multiplicand approach for assessing future loss of earnings.
• The relevance of the Ogden Tables in calculating future losses.
• The claimant's duty to mitigate financial losses.
• Principles governing claims under the Law Reform (Miscellaneous Provisions) Act 1934 and the Fatal Accidents Act 1976, specifically regarding loss of dependency.
• The effect of contributory negligence on damages (Law Reform (Contributory Negligence) Act 1945).
• How recoverable state benefits are treated through the Compensation Recovery Unit (CRU) and the Social Security (Recovery of Benefits) scheme.
• Periodical payments (Damages Act 1996, s 2) and provisional damages (Senior Courts Act 1981, s 32A).

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the primary objective of awarding compensatory damages in tort?
2. Distinguish between special damages and general damages in the context of loss of earnings.
3. What is the 'multiplier-multiplicand' method used for?
4. Under which Act can dependants of a deceased person claim for loss of financial support?

Introduction

When a claimant succeeds in a tort claim involving personal injury or death, a significant component of the remedy awarded is damages designed to compensate for financial losses. A primary element of this financial loss is the loss of earnings, both those incurred before the trial or settlement (pre-trial loss) and those anticipated to be lost in the future (post-trial loss). Assessing these losses requires applying specific legal principles and calculation methods to achieve the fundamental aim of tort damages: restoring the claimant, as far as possible, to the position they would have been in had the tort not occurred. Loss of earnings damages sit within the broader framework of special (past pecuniary) and general (future pecuniary and non-pecuniary) damages. Courts emphasise net income (after tax, NI and pension contributions) and carefully avoid double recovery, ensuring collateral receipts which the law disregards (such as charitable gifts) do not inflate awards while state social security benefits are addressed via statutory recovery mechanisms.

Compensatory Damages: Core Principles

The overarching principle guiding damages in tort is restitutio in integrum, meaning restoration to the original position. This aims to place the claimant, financially, where they would have been without the defendant's wrongful act. Damages are broadly categorised into pecuniary (financial) and non-pecuniary (non-financial) losses. Loss of earnings falls under pecuniary losses and is approached in two parts: special damages (past net losses to trial) and general damages (future loss assessed at trial). Courts adjust awards where contributory negligence is established (Law Reform (Contributory Negligence) Act 1945) and, for future awards, discount to present value using the statutory discount rate.

Key Term: Pecuniary Loss
Financial losses that can be quantified in monetary terms, such as lost earnings, medical expenses, and care costs.

Key Term: Non-Pecuniary Loss
Losses that are not easily quantifiable in monetary terms, principally pain, suffering, and loss of amenity (PSLA).

Pre-Trial Loss of Earnings

This head of damage covers the period from the date of the injury up to the date of the trial or settlement. It is classified as special damages because it represents losses that have already crystallised and can, in theory, be calculated precisely.

Pre-trial loss claims must be proved by cogent evidence and, typically, are quantified by examining what the claimant would have earned but for the injury, and comparing that to what they actually received. Key features include:

• Documentary proof of earnings: payslips, P60s, P11Ds (benefits-in-kind), contracts, HMRC returns (for the self-employed), bank statements, and letters from employers.
• Calculation based on net earnings (deducting income tax, National Insurance, and employee pension contributions).
• Inclusion of regular components of pay: overtime, bonuses, commission (where sufficiently regular), and the monetary value of benefits-in-kind (e.g. car allowance).
• Deduction of work-related expenses saved: commuting, parking, professional subscriptions tied to work (only where demonstrably saved).
• Deduction of actual receipts: any pay received (wages, sick pay), Statutory Sick Pay, income from interim or alternative employment, and insurance payments which the law requires to be set off.

Calculation

The calculation aims to determine the claimant's net loss of earnings during this period. This involves:

• Establishing pre-injury net earnings: the likely take-home pay but for the injury, including regular overtime/bonus.
• Deducting post-injury actual receipts: wages, sick pay, SSP, and any interim earnings during recovery.
• Adjusting for saved work expenses: if significant and provable.
• Accounting for benefits: recoverable social security benefits are handled via the CRU scheme under the Social Security (Recovery of Benefits) regime; the court does not typically net them off but issues are resolved between CRU and compensator.
• Avoiding double recovery: earnings from alternative work or insurance pay-outs replace lost wages and must be brought into account where the law requires.

Evidence such as payslips, employment contracts, tax returns, and employer statements is essential. For fluctuating earnings, courts often use a reasonable average over a representative period (e.g. 6–12 months) immediately preceding the accident.

Mitigation

Claimants have a duty to mitigate their loss. This means they must take reasonable steps to minimise their financial losses, including:

• Seeking suitable alternative employment if unable to return to their previous role within a reasonable period.
• Undertaking reasonable retraining or upskilling where appropriate.
• Following medical advice and engaging with rehabilitation reasonably.
• Accepting suitable light-duty roles if offered by the employer and medically appropriate.

Failure to take reasonable steps to mitigate can result in a reduction of the damages awarded for avoidable losses. The standard is reasonableness; claimants are not required to accept significantly inferior or unsuitable work or relocate unreasonably.

Worked Example 1.1

Alex earned £3,000 net per month including regular overtime averaging £300. After a back injury, Alex was off for 6 months. For months 1–3 Alex received £1,500 net employer sick pay per month plus SSP of £116 per week (assume £500 per month net for ease). For months 4–6 Alex earned £1,000 per month in lighter temporary work. Alex’s saved commuting costs were £100 per month. What is the pre-trial net loss?

Answer:
But for injury, Alex’s net earnings would have been £3,000 per month. Months 1–3 actual receipts: £1,500 sick pay + £500 SSP = £2,000 per month. Net monthly loss = £3,000 − £2,000 = £1,000. Deduct saved commuting costs (£100), leaving £900 net loss per month for months 1–3. Months 4–6 actual receipts: £1,000 per month from temporary work. Net monthly loss = £3,000 − £1,000 = £2,000; minus £100 saved costs = £1,900 per month. Total pre-trial loss: (3 × £900) + (3 × £1,900) = £2,700 + £5,700 = £8,400. CRU recovery of SSP is addressed separately and does not change the court’s net calculation.

Post-Trial Loss of Earnings

This covers the loss of earnings anticipated from the date of trial or settlement into the future. It is classified as general damages because it involves estimating future losses and cannot be calculated with absolute precision.

Future loss of earnings require a structured approach that captures the claimant’s residual earning capacity, career trajectory, labour market risks, and time-to-retirement. Courts expect expert evidence where appropriate (medical, vocational, actuarial), though many cases can be assessed on lay and documentary evidence with Ogden Tables.

The Multiplier-Multiplicand Method

The standard method for calculating future loss of earnings involves two key figures:

Key Term: Multiplicand
The claimant's net annual loss of earnings, representing the yearly financial loss projected into the future. This figure is based on likely earnings but for the injury (including expected progression where reasonably likely), minus any residual earning capacity and savings in work-related costs.

Key Term: Multiplier
A figure representing the number of years the loss is expected to continue, discounted to reflect early receipt and adjusted for contingencies. Derived from Ogden Tables it reflects age, mortality, employment risks and the statutory discount rate.

The future loss is calculated by multiplying the multiplicand by the multiplier. Residual earning capacity is critical: where the claimant can work in reduced hours or at lower pay, future loss is the difference between the but-for net earnings and the residual net earnings.

Ogden Tables

These actuarial tables provide statistical data used to determine the appropriate multiplier. They factor in mortality rates, employment probabilities, and contingencies other than mortality. The tables are updated periodically, and their use is standard practice in personal injury litigation to ensure consistency and accuracy. Courts apply appropriate reduction factors for employment contingencies (the “RF” tables) having regard to disability, education, and labour market disadvantage. Accurate application often requires careful selection of assumptions and may be supported by vocational expert evidence.

Key Term: Ogden Tables
Actuarial tables used by courts in the UK to calculate multipliers for assessing future financial losses in personal injury and fatal accident claims.

Contingencies and Discount Rate

The multiplier derived from the Ogden Tables is adjusted for contingencies other than mortality (e.g., sickness, unemployment), unless already factored into the specific table used. Importantly, it incorporates a discount rate. This reflects the fact that the claimant receives the compensation as a lump sum, which can be invested. The discount rate aims to ensure the claimant is not overcompensated. The rate is set by the Lord Chancellor under the Damages Act 1996; the current rate in England and Wales is -0.25%. An expert may assist in selecting appropriate reduction factors and addressing any bespoke contingencies (e.g., sector-specific redundancy risk).

Loss of Earning Capacity (Smith v Manchester Award)

Sometimes, a claimant returns to their pre-injury earnings level but the injury places them at a disadvantage on the open labour market should they lose their current job. In such cases, the court may make a separate award for this loss of earning capacity, often referred to as a Smith v Manchester award. This compensates for the risk that future job searches might be more difficult or result in lower earnings due to the injury. Awards commonly range from approximately 6 to 24 months’ net earnings depending on the evidence of disadvantage, age, and sector.

Worked Example 1.2

Question: Sarah, aged 30, was a graphic designer earning £40,000 net per year. Due to a negligently caused injury, she can now only work part-time in an administrative role earning £15,000 net per year. She planned to retire at 67. How is her future loss of earnings initially calculated?

Answer:
The multiplicand is her net annual loss: £40,000 − £15,000 = £25,000. The multiplier would be determined using the Ogden Tables, based on a female aged 30 with a retirement age of 67, adjusted for contingencies and using the current discount rate (-0.25%). Multiplying the £25,000 multiplicand by the appropriate multiplier gives the lump sum award for future loss of earnings.

Worked Example 1.3

Priya (age 45) returned to her pre-injury salary after shoulder surgery but with permanent restrictions and risk of flare-ups. She is retained by a supportive employer but would be disadvantaged if she lost her job. The court finds a modest labour market disadvantage. What award may be considered?

Answer:
A Smith v Manchester award to reflect future earning capacity risk rather than a full future loss calculation, often expressed as a multiple of net monthly earnings. On the facts, an award of, for example, 12 months’ net pay could be appropriate if the evidence shows a real (but moderate) disadvantage.

Damages on Death

When a person's death is caused by a tort, specific statutory frameworks govern the recovery of damages, primarily the Law Reform (Miscellaneous Provisions) Act 1934 (LR(MP)A 1934) and the Fatal Accidents Act 1976 (FAA 1976). These regimes operate in parallel but must be coordinated to avoid double recovery.

Law Reform (Miscellaneous Provisions) Act 1934

This Act allows certain causes of action vested in the deceased at the time of death to survive for the benefit of their estate. The estate can claim for losses suffered by the deceased up to the date of death. This includes:

• Pain, suffering, and loss of amenity experienced before death (subject to awareness rules).
• Loss of earnings incurred between injury and death (net).
• Expenses incurred before death (e.g., medical costs).
• Funeral expenses if paid by the estate.

Damages recovered become part of the deceased's estate and are distributed according to their will or intestacy rules. Where the deceased’s life expectancy was reduced, the estate may also claim for future earnings lost in the “lost years”.

Key Term: Lost Years
In a fatal accident or shortened-life expectancy case, the period between the deceased’s predicted date of death due to the tort and their predicted date of death had the tort not occurred. The estate can claim for net loss of earnings during this period, less the deceased’s likely personal living expenses.

Fatal Accidents Act 1976

This Act allows specified dependants of the deceased to bring a claim in their own right for losses suffered as a result of the death. The key claims are:

1. Loss of Dependency: Compensates dependants for the loss of financial (and sometimes services) support they would have received from the deceased.

   • Eligibility: Only dependants listed in s.1(3) FAA 1976 (e.g., spouse, civil partner, cohabitee living together for at least two years pre-death, children, parents, and other specified relatives) can claim.
   • Assessment: Uses the multiplier-multiplicand method. The multiplicand is the annual value of the financial dependency: household net income less the deceased’s personal living expenses (“PLES”). Conventional PLES deductions often applied are 25% for a married household without dependent children and 33% where dependent children are present, though courts may tailor deductions to evidence. The multiplier reflects the expected duration of the dependency, adjusted using Ogden Tables.
   • Irrelevant Factors: Prospects of remarriage or civil partnership for a surviving spouse/partner are disregarded (s.3(3) FAA 1976). Benefits accruing to dependants from the estate (e.g., inheritance) are also disregarded (s.4 FAA 1976).

2. Bereavement Damages: A fixed statutory sum awarded for grief recognised by statute. Only specific relatives can claim (spouse/civil partner, cohabiting partner in eligible cases, parents of an unmarried minor child, with rules on apportionment if both parents claim).

Key Term: Bereavement Damages
A statutory, fixed-sum award under the FAA 1976 payable to specified relatives to recognise bereavement arising from wrongful death. It is not compensatory for financial loss and is separate from loss of dependency.

1. Funeral Expenses: Can be claimed if paid for by the dependants (rather than the estate).

The dependency can include loss of services (childcare, household tasks) where evidence supports their value. In practice, courts may apply conventional annual sums to reflect lost services alongside financial dependency.

"Lost Years" Claim

Under the LR(MP)A 1934, the estate can claim for the deceased's loss of earnings during the "lost years" – the period the deceased would have lived and worked but for the tortious death. This award is calculated based on the deceased's net earnings during those years, less an estimated amount for their personal living expenses had they survived. Where dependants also bring FAA claims, careful coordination is required to avoid double recovery: dependency covers the support the deceased would have provided, while lost years compensates for what the deceased personally would have retained after personal living expenses.

Worked Example 1.4

Question: David, aged 45, was killed instantly in an accident caused by Tom's negligence. David earned £50,000 net annually. He is survived by his wife, Chloe (aged 43), and two children (aged 10 and 12). David would have retired at 67. What claims might Chloe bring?

Answer:
Chloe can bring claims under the FAA 1976.

1. Loss of Dependency: For herself and the children. The multiplicand will be based on David's £50,000 net income (plus any household income if relevant), less his personal living expenses (often 25% or 33% depending on dependants). The multiplier will be based on the expected duration of dependency (until David's retirement for Chloe, and typically until completion of education for children), adjusted via Ogden Tables.
2. Bereavement Damages: Chloe may claim the fixed statutory sum.
3. Funeral Expenses: If she paid them.
   David's estate could also bring a claim under the LR(MP)A 1934 for pre-death losses (likely nil if death was instant) and potentially a “lost years” claim, although coordination is required to avoid overlap with the dependants’ dependency claim.

Worked Example 1.5

A household has net income of £60,000 (deceased earned £40,000 net; survivor earned £20,000 net). There are two dependent children. The court adopts a 33% PLES deduction for the deceased. What is the financial dependency multiplicand?

Answer:
The dependency multiplicand is the net household income less the deceased’s personal living expenses (PLES). Household net = £60,000. Deceased PLES = 33% of £40,000 = £13,200. Financial dependency multiplicand = £60,000 − £13,200 = £46,800 per annum. This may be further adjusted for services dependency where appropriate and subject to evidence.

Worked Example 1.6

Sam (age 35) suffers negligent exposure shortening life expectancy by 20 years. Sam earned £45,000 net and had no dependants. The estate pursues a “lost years” claim. What is the proper basis of calculation?

Answer:
Under LR(MP)A 1934 the estate claims Sam’s net income for the lost years less Sam’s personal living expenses (since Sam would have used part of earnings to support himself). If, for example, the court adopts a 25% deduction for PLES, the lost years multiplicand would be £45,000 − £11,250 = £33,750 per year, multiplied by an appropriate Ogden-based multiplier for the 20 lost years. There is no FAA dependency claim as there are no dependants.

Special Considerations

Periodical Payments

The Damages Act 1996 (s 2) and the Courts Act 2003 enable courts to order damages for future pecuniary loss (like loss of earnings or care costs) to be paid as periodical payments rather than a single lump sum. This can provide greater financial security for claimants with long-term needs and reduce the risk of under- or over-compensation where future losses are uncertain or reliant on long timescales.

Provisional Damages

Where there is a proven chance that the claimant may develop a serious disease or suffer a serious deterioration in their condition in the future, the court may award provisional damages under the Senior Courts Act 1981, s 32A. This allows the claimant to receive damages for their current condition and return to court for further damages if the specified disease or deterioration occurs later. Provisional damages interact with future loss of earnings claims by reserving rights for future worsening that materially alters earning capacity.

Tax, Benefits, and Set-Offs

• Loss of earnings awards are based on net income (after tax, NI, pension) to mirror take-home pay.
• Personal injury damages are not subject to income tax; the netting process reflects but-for net earnings, not future tax liability on the award.
• Recoverable state benefits are handled via the CRU scheme; the compensator may need to repay benefits out of the award and issues of set-off are addressed under statute.
• Sick pay and insurance receipts: where these replace earnings, they are brought into account to avoid double recovery unless the collateral source is one the law disregards.

Contributory Negligence and Breaks in Chain

Where contributory negligence is established, all damages (including loss of earnings) are reduced to reflect the claimant’s share of fault. Intervening events may break the chain of causation for continuing losses (e.g., a second, unrelated negligent injury causing further incapacity), leaving the original tortfeasor liable only for losses up to the intervening event.

Worked Example 1.7

Liam (age 50) earned £36,000 net. After injury, Liam can earn £18,000 net. Retirement at 68. The court finds contributory negligence of 25%. Using Ogden, a multiplier of 15 is adopted for Liam’s future loss. What is the future loss award?

Answer:
Multiplicand (net annual loss) = £36,000 − £18,000 = £18,000. Multiplier = 15. Gross future loss = £18,000 × 15 = £270,000. Contributory negligence at 25% reduces this by one-quarter: £270,000 × 0.75 = £202,500.

Worked Example 1.8

Maya’s earnings fluctuated significantly due to seasonal work. Pre-injury average net monthly earnings are assessed at £2,500 based on a 12-month pre-accident period. She earned nothing for 4 months then £1,200 per month for 3 months before trial. Saved expenses per month were £50. What is the pre-trial loss?

Answer:
But-for net earnings: £2,500 per month. Months 1–4: actual receipts £0; saved costs £50; net loss per month = £2,500 − £50 = £2,450; total = 4 × £2,450 = £9,800. Months 5–7: actual receipts £1,200; saved costs £50; net loss per month = £2,500 − £1,200 − £50 = £1,250; total = 3 × £1,250 = £3,750. Total pre-trial loss = £9,800 + £3,750 = £13,550.

Exam Warning

When calculating damages, pay close attention to the specific heads of loss. Distinguish clearly between pre-trial (special damages) and post-trial (general damages) losses. Remember that pure economic loss principles generally prevent recovery for the cost of a defective product itself, but consequential economic loss flowing from personal injury or damage to other property is usually recoverable. Fatal accident claims require careful application of the LR(MP)A 1934 and FAA 1976 rules. For future loss, apply Ogden Tables properly, incorporate appropriate reduction factors and the discount rate, and assess residual earning capacity fairly. Avoid double recovery when estate (lost years) and dependency claims are both pursued.

Key Point Checklist

This article has covered the following key knowledge points:

• The aim of compensatory damages in tort is restoration (restitutio in integrum).
• Loss of earnings is a key head of pecuniary loss, divided into pre-trial (special damages) and post-trial (general damages).
• Pre-trial loss is calculated based on net earnings lost up to the trial date, considering deductions, actual receipts, and mitigation.
• Post-trial loss is calculated using the multiplier-multiplicand method, utilising the Ogden Tables and incorporating the discount rate.
• Smith v Manchester awards compensate for labour market disadvantage where future earnings may be jeopardised despite current parity.
• Claimants have a duty to mitigate their losses.
• Damages on death involve claims under the LR(MP)A 1934 (for the estate) and the FAA 1976 (for dependants).
• FAA 1976 claims include loss of dependency, bereavement damages, and funeral expenses; remarriage prospects and inheritance are disregarded.
• "Lost years" claims compensate the estate for earnings lost due to shortened life expectancy, less personal living expenses.
• Periodical payments and provisional damages are exceptions to the lump sum rule.
• Contributory negligence reduces damages proportionately; recoverable benefits are addressed via CRU.

Key Terms and Concepts

• Pecuniary Loss
• Non-Pecuniary Loss
• Multiplicand
• Multiplier
• Ogden Tables
• Bereavement Damages
• Lost Years

Key Term: Bereavement Damages
A fixed statutory award under the FAA 1976 payable to eligible relatives to recognise grief; separate from financial loss claims.

Key Term: Lost Years
Damages to an estate under LR(MP)A 1934 for a deceased’s lost earnings during reduced life expectancy, net of personal living expenses.

Key Term: Multiplicand
The claimant’s net annual loss (but-for earnings minus residual earnings), used in future loss calculations.

Key Term: Multiplier
The Ogden-derived, discount-adjusted figure representing the period of future loss.

Key Term: Ogden Tables
Actuarial tables guiding multipliers and employment contingency reductions for future pecuniary losses.

Key Term: Pecuniary Loss
Monetary loss capable of precise calculation (e.g., wages, medical costs).

Key Term: Non-Pecuniary Loss
Non-monetary loss, including pain, suffering and loss of amenity.